salary cap

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The placing of limits on team payrolls, usually set at a fixed percentage of league revenues, and so constraining each team within the league to spend between a specified minimum and maximum on player salaries. The salary cap was a response to the successful legal challenge in the USA to Major League Baseball's and the National Football League's reserve clauses, the effect of which was to spiral player earnings upwards as players negotiated terms from team to team. The big professional sports in the USA responded with the implementation of salary caps: the National Basketball Association for the 1984–5 season, the National Football League in 1994. In practice, employers could undermine the principles of the cap. Re-signed free agents were exempted from the cap in basketball (what was known as the ‘Larry Bird exception’), and in 1997–8 Michael Jordan received more than $33 million from the Chicago Bulls, when its salary cap for the team payroll was $26.9 million. The efficacy of the salary cap depends upon the integrity of the employers, in their intra-league networks, and the credibility of the capping process itself (whether it is a ‘soft’, as in baseball, or a ‘hard’, as in American football, version of the principle). Overall, though, debates about the salary cap and efforts to implement it demonstrate the recognition by sport organizations that a free-for-all in the market threatens the equilibrium of sporting finances, and the competitive balance of sporting encounters. See also maximum wage.

Subjects: Sport and Leisure.

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